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Helping New York Business Owners Achieve Success
Starting and running a business in New York is a complicated venture. Many begin the journey without the guidance and understanding required to navigate business law. There can be a tough learning curve to overcome. You need the advice and knowledge of an experienced business attorney. At Fisher Stone, P.C., our business attorneys have the skills and experience required to help you achieve success. Your dreams are just around the corner with Fisher Stone, P.C.
We work tirelessly to make each client feel valued and heard. At Fisher Stone, P.C., you will find a team of dedicated attorneys living our core principles of people, process, and partnership. We aim to communicate all aspects of business ownership so you are prepared to conquer your industry, whether you plan to buy, sell, or grow your business. You can achieve success. Call 516-908-9519 to schedule your free consultation and learn how we can help your business flourish.
What are Asset Sales?
In legal terms, business asset sales occur when it sells some or all of its assets to another entity or person. A business owner might dispose of many different types of assets at one time or another. Some of the most common assets include:
- Inventory
- Buildings/Property
- Fixtures
- Equipment
- Licenses
- Leaseholds
- Goodwill
- Telephone numbers
- Intellectual Property Rights
In most cases, asset sales do not include any actual cash exchange. Additionally, the seller will maintain all debt associated with the sale. For this reason, asset sales are frequently known as cash-free, debt-free transactions.
What is net working capital?
Net-working capital is the difference between a business’s short-term assets and debts and liabilities. It is usually included in asset sales in addition to individual assets. Positive net working capital indicates a business’s health and meeting all of its financial obligations. There are many types of net working capital. Some of the most common are:
- Accounts Payable
- Accounts Receivable
- Accrued expenses
- Inventory
- Prepaid expenses
What Are Some of the Benefits of Business Asset Sales?
Asset sales have many pros and cons. From a buyer’s perspective, they are attractive because they involve fewer tax obligations. The following are some of the benefits of asset sales:
- Buyers can allocate a higher value to assets that depreciate quickly, which has many beneficial tax implications.
- Taxes are reduced sooner compared to ordinary income tax rates.
- Asset sales will improve the company’s cash flow within the first few years.
- Buyers avoid inheriting liabilities because sellers maintain legal ownership of several asset details.
- Buyers can more easily avoid contingent liabilities like product liability, contract disputes, product warranty issues, and employee lawsuits.
On the seller’s side, there are other benefits to consider:
- Asset sales generate higher taxes since they are subject to ordinary income tax rates.
- The seller is not liable for the company’s employees (they don’t have to pay back wages, payroll taxes, or vacation pay).
- The costs of the assets sold are depreciable.
- There are benefits for the seller’s credit, reputation, and worker’s compensation rating.
What Are the Cons of Asset Sales?
As with most things, there is an equal negative for every positive aspect. Some of the cons from the seller’s point of view are:
- Transferring leases and contracts is time-consuming and can be tricky. Negotiating the terms requires a keen understanding of the New York business laws and landscape. The educated and experienced business attorneys at Fisher Stone, P.C. are available to answer any questions
- There are tax implications on furniture, fixtures, and equipment
- Capital gains rates are applied to intangible assets
The buyer’s perspective is a bit different. The disadvantages for buyers include:
- Transferring certain types of assets is more challenging because of assignability, legal ownership, and third-party consents. Examples include intellectual property, contracts, leases, and permits
- It can be extremely time-consuming to get a purchase agreement and consent
- The transaction process can be slowed down while refiling permit applications
What Are Some of the Tax Implications in Asset Sales?
Determining the tax implications of asset sales can take time and effort. The type of corporation determines tax implications. For example, if the sold entity is a C-corporation, the seller faces double taxation. The first taxation comes when the buyer receives the proceeds from the sale. These are taxed at the corporate rate. The individual rate is applied to the distribution to shareholders.
However, tax implications change if the business is an S-corporation that was formerly a C-corporation. The sale can trigger significant taxes at the corporate level. Additionally, S-corporations, limited liability companies, and partnerships are only taxed once the proceeds pass to the owners. This taxation is at the individual rate, which is higher than the capital gains rate.
Why Should I Hire a Business Attorney in New York?
Deciding to start a business in New York is an exciting venture. It takes courage and grit to succeed in today’s complex and challenging business landscape. Many business owners put everything they have into their business, and after taking such a risk, you need to know that you are protected no matter what. To achieve this, you need the assistance of a dedicated team of legal counsel who are available and ready to answer any question regarding your business’s health and wealth. At Fisher Stone, P.C., we are determined to see you succeed. Your dreams are just around the corner. Call 516-908-9519 for a free consultation.
